Dam finally breaks for Balfour
Beatty's Welton Public Relations; Unlearned lessons - Independent
14 November 2001
Friends of the Earth and other non-government organisations (NGOs)
were hailing it as a famous victory. Balfour Beatty was meanwhile
insisting that its decision to withdraw from the Ilisu Dam project,
in eastern Turkey, had little to do with the highly active campaign
to have the whole thing ditched, and everything to do with long, professional
and careful consideration, resulting in a decision taken largely on
commercial grounds, after due process and exhaustive study.
Mike Welton, Balfour's chief executive, deserves some kind of an award
for doggedly refusing to let the campaigners bulldoze him into early
submission, but the fact of the matter is that this was a contract
that his company should probably never have become involved in in
the first place and certainly should have abandoned a long time ago.
"Due process" is an admirable thing, but you have to wonder
whether it was wholly necessary given the blindingly obvious conclusions
it came to.
As controversial projects in the developing world go, this one had
it all. The Turkish government wants to dam the Tigris river in eastern
Turkey, throwing up to 25,000, mainly Kurdish, people out of their
homes and completely changing the nature of the surrounding environment.
Some see the project as part of a wider programme of ethnic cleansing
in an area already devastated by years of armed conflict between ethnic
Kurds and the Turkish state. Enough said?
There's more. The dam would also flood an area rich in archeological
treasures, some of them dating back 10,000 years, and enable Turkey
to control more than half the downstream flow of the river into Iraq
and Syria, thus threatening the whole region with repeated conflict
over water flows to neighbours.
Small wonder that Balfour Beatty, which was asking the Government
for $200m of export guarantees for its own relatively small part in
the project, found itself the butt of some at times vicious campaigning.
Normally agnostic institutional shareholders were galvanised into
asking whether the contract was really worth the candle. The Government
could have put paid to the whole thing ages ago by simply refusing
to approve the credit, but found the goals of its own "ethical
foreign policy" somewhat at odds with its parallel desire to
look business friendly and toady up to the Turks So under the then
Secretary of State for Trade and Industry, the hapless Stephen Byers,
the issue was fudged by imposing four conditions on export aid. Balfour
Beatty has taken two years to decide the conditions are too onerous
to make participation possible. The Government is off the hook and
Balfour Beatty is left looking a right old Charlie.
It's all a bit of a shame really. Dams are an area of particular expertise
for Balfour Beatty but, for all the reasons highlighted by the Ilisu
dam controversy, not many of them are these days built outside the
totalitarian regimes of China, Africa, and the Far East, where concern
over humanitarian displacement, the protection of antiquities, river
flow to neighbours, environmental damage and all the rest don't figure
highly on the list of priorities.
A mighty tome published last year by the United Nations-sponsored
"World Commission on Dams" made their construction that
much more difficult still by listing an astonishing 26 guideline conditions.
If by any chance you manage to satisfy the first 25, you'll certainly
get fouled on the 26th. None of this means Ilisu won't happen. The
Brits and Italians are now out, but local contractors are still very
much in, as are the lead French and Swiss contractors for the turbines,
generators and related electrical equipment.
Public Relations
The Financial Services Authority is turning its attention to City
public relations firms. This formerly lucrative cottage industry already
has plenty to worry about, now the boom in mega mergers and new issues
is dead and gone. The FSA wants to use its formidable new powers to
make the industry clean up its act as well.
Aside from being the whipping boy when things go wrong, part of the
financial PR's lot is to say the things that companies can't be seen
to be saying or that bankers aren't allowed to since spindoctors do
not require FSA authorisation to conduct their business. The FSA worries
that this often amounts to market manipulation, which is against the
law. PRs, it believes, are frequently instrumental in disseminating
inaccurate puff or slander about companies, and that they allow good
information to get into the wrong hands before it gets out into the
market.
Perhaps surprisingly, the FSA professes to be unconcerned about the
most potent weapon in the spindoctors' arsenal, the "drop"
of tomorrow's press release to an anointed hack, invariably in the
expectation of a favourable slant being put on the story. As long
as the material appears coincidentally with the formal announcement,
then there isn't a problem, the FSA says.
In which case it is hard to see where the FSA is coming from. The
City is filled with a thousand different gossips and voices, many
of them badly or mis-informed, but nearly all of them with some sort
of an axe to grind. It is part of the journalist's and analyst's job
to sort the wheat from the chaff and to disentangle the spin from
the truth. Those who don't are soon found out and ignored. It is likewise
always going to be next to impossible to regulate an industry whose
raison d'etre is to manipulate information, thereby to bolster and
defuse its effect according to instructions. The FSA can try all it
likes to close down the flow of good and bad information, but as long
as there's a market, it will never succeed.
Unlearned lessons
In any previous business downturn, a basket case as bad as Marconi
would by now already have been in administration. The banks or bondholders
would have pulled the plug, there would be a fire sale of assets going
on and it would all be over for this one time stalwart of corporate
Britain. This time around it's different. All the effort is going
into keeping the casualties alive, through debt restructuring or in
BT's case by arm twisting the City into supporting a rescue rights
issue. In the old days, they would have been put down. Now they are
kept on life support. It is not altogether clear this is the right
approach. In theory, the financial pain isn't as bad, or at least
it tends to get more broadly spread, but the lessons are swept under
the carpet and as a result the wrecklessness that allowed this to
happen will return sooner than we would wish. The old way was more
brutal, but it was profoundly more corrective in its effect.
The writedowns announced by Marconi yesterday, for which read the
difference between what Marconi paid for these businesses and what
they are now worth, defy belief, but the failure in management and
controls that allowed it to happen are already water under the bridge,
and the value destruction involved just another of those things. In
another time and another company, the "impairment charge"
announced yesterday by Vodafone an astonishing £4.5bn would
have caused a boardroom and banking crisis. Today it takes second
place to Ebitda and didn't even merit a mention in the Reuters report
on the figures. No one likes to admit the boom is over, but this looks
more and more like denial.j.warner@independent.co.uk

The controversial Ilisu dam project in Turkey, personally
backed by Tony Blair, has been dropped by Balfour Beatty, the company
that led the international consortium which would have drowned the
Kurdish homelands. The £1.25bn project to dam the Tigris, first
revealed in the Guardian in March 1999, needed the backing of the
export credit departments of nine countries to make it viable, with
the UK in the lead.
The giant construction firm said yesterday it had decided to pull
out because the "commercial, social and environmental" issues
were unlikely to be resolved soon.
Balfour Beatty's Italian partner, Impregilo, also abandoned the project
yesterday. Environmental and human rights groups were jubilant. The
surprise announcement follows speculation last week that the prime
minister was resolutely behind the Ilisu dam, partly because of pressure
from the Turkish government, which wanted a reward for its help in
providing bases for the bombing of Afghanistan.
Robin Cook, who at the time of the original proposal was foreign secretary,
was among cabinet members reportedly opposed to it.
The project had provoked an international outcry by environmental
and human rights groups, and diplomatic objections from Syria and
Iraq, which claimed it interferred with their rights to water from
the river Tigris and that they had not been consulted.
The Arab League warned the British government against backing the
project. In response to pressure, the government set four conditions
before it would back the project to the tune of £300m. These
were a proper resettlement programme for 50,000 displaced Kurds, consultation
with Syria and Iraq, archaeology rescue plans for the 2,000-year-old
city of Hasankeyf and preservation of the 100,000 years of history
in the region, and environmental improvements including sewage works.
After the independent World Commission on Dams report earlier this
year, which set high standards for building similar projects, Skanska,
the Swedish member of the consortium, pulled out.
Stephen Byers, then at the Department of Trade and Industry, dropped
strong hints that the government was also to abandon the project but
was overruled by No 10. Balfour Beatty is involved in a number of
private finance initiatives with the government.
A report on Ilisu this July on how the four conditions were being
met, said the human rights issues and consultations with downstream
neighbours were still unresolved.
Mike Welton, chief executive of Balfour Beatty, yesterday said that
with the issues still unsecured and no early resolution likely, it
was not in the best interests of the company to continue. It believed
the project could only proceed with substantial extra work and expense
and it would suffer considerable further delay.
Kerim Yildiz, spokesman for the Kurdish Human Rights Project, said:
"We are delighted. We were not expecting this, because Balfour
Beatty was fighting hard for the dam.
"This Ilisu campaign is a great example of environment and human
rights groups fighting together to be effective." Charles Secrett,
director of Friends of the Earth, said: "This is a tremendous
win against a disastrous project. The story of the Ilisu dam shows
the need for laws which require British firms to adopt clear ethical
and environmental standards in their work abroad as well as at home."
The Department of Trade and Industry and the export credit guarantee
department were saying little yesterday. The official line was that
the "decision is a commercial matter for the company". But
it was clear there will be relief that such a potential political
disaster has gone. The government faced a judicial review over human
rights and breaches of international law if it had gone ahead.
Though this means the scheme is now effectively dead, the Turkish
government has always said it would continue with the project whether
or not it got the foreign backing. It intends to issue a statement.

The project could affect 60,000 people, reports say
Balfour Beatty, the British construction firm hired to build the controversial
Ilisu dam in Turkey, has pulled out of the project.
Balfour was the main contractor on the $1.5bn dam, which aimed to
form a reservoir on the upper River Tigris in the largely Kurdish
south-east of the country.
Balfour Beatty believes the project could only proceed with substantial
extra work and expense, and with considerable further delay
Balfour Beatty statement
The departure of Balfour, together with Impregilo of Italy, its civil
engineering partner, throws the Ilisu dam's future into doubt.
Balfour's announcement pre-empts the British government decision on
whether to grant it export credit financing - a decision that might
have proved tricky after the dam failed a key environmental assessment
in July.
"The decision follows a thorough and extensive evaluation of
the commercial, environmental and social issues inherent in the project,"
the firm said in a statement.
"With appropriate solutions to these issues still unsecured and
no early resolution likely, Balfour Beatty believes that it is not
in the best interests of its stakeholders to pursue the project further.
"Given the substantial difficulties which remain to be addressed...
Balfour Beatty believes the project could only proceed with substantial
extra work and expense and with considerable further delay."
Multiple defections
Balfour's defection is the latest in a stream of bad news for the
dam project, which has struggled to secure backing since its final
designs were approved in 1982.
The ancient city of Hasankeyf was theatened
The Swedish construction firm Skanska quit the Ilisu project a year
ago, citing the complexities of negotiating with the various parties
involved.
After the defection of Balfour, only Austria's VA Tech - which specialises
in hydro-electric technology - is involved as a foreign partner in
the consortium.
The British government Export Credits Guarantee Department, which
had been due to help with financing, confirmed that Balfour's pull-out
meant that their involvement in the project was over.
Balfour Beatty's contract was worth nearly £200m.
Contentious project
British involvement in the Ilisu dam has been highly contentious.
Environmentalists, who have campaigned fiercely against the project,
say it would affect the lives of 60,000 people, who would be displaced
from the area around the Tigris.
International development agencies also worried that it would disrupt
supplies of water around the Middle East - something that has been
a najor political flashpoint in recent years.
And there have also been concerns that the flooding could destroy
some of Turkey's most ancient archaeological sites - notably the Mesopotamian
city of Hasankeyf.
Political questions
Previously, the UK government had thrown its whole weight behind the
project, arguing that it was good for relations with Turkey.
Trade Secretary Patricia Hewitt had been due to decide on financing
It is not yet clear whether the Balfour pull-out will cause the project
to be postponed, or even cancelled, but experts say it seems unlikely
that VA Tech will be able to push the project through alone.
"Now there have to be big doubts over the project," Kerim
Yildiz, executive director of the Kurdish Human Rights Project, told
BBC News Online.
"We think it is fantastic news."
But while environmentalists and other campaigners will be cheered,
the move will be seen as a blow to Turkey, which has struggled to
attract major foreign investment projects in recent years.
The Turkish embassy in London said it was awaiting a statement from
the foreign ministry in Ankara on the likely future for the project.
--

Dear friends,
Balfour Beatty, the lead contractor for the controversial Ilisu Dam
in the Kurdish region of SE Turkey, has announced its withdrawal from
the project on social, environmental and economic grounds. Its Italian
partner, Impregilo, has also withdrawn. The withdrawal follows a sustained
campaign by human rights and environment NGOs, including shareholder
resolutions against Balfour Beatty.
Balfour Beatty had applied for export credit support from the UK Export
Credits Guarantees Department (ECGD) and from the US Ex-Im Bank. With
the withdrawal of the company from Ilisu, both agencies have ceased
to be involved in the project. The company admits that the project
failed to meet the conditions laid down by the ECAs for export credit
support.
Impregilo's application for export credits with the Italian export
credit agency, SACE, is also now withdrawn.
Sulzer Hydro, the company which heads the consortium that hopes to
build the dam, has said that it is looking for a partner to replace
Balfour Beatty. However, a well placed Turkish source told Channel
4 news, "Other European firms won't be interested now and the
Ilisu project may not go ahead." (see below)
The UK, Italian and US governments were due to decide whether or not
they would support the project. However, the withdrawal of Balfour
Beatty and Impregilo has let them off an embarassing hook - and avoided
a potentially precedent-setting decision. Major UK departments were
understood to be aganist the project - but Prime Minister Tony Blair
was reported to be pushing it in order to secure Turkish military
support for the war against Afghanistan.
Campaigners are calling for the ECGD and other ECAs to adopt legally-binding
human rights, environment and development standards in order to screen
out projects such as Ilisu. At present, the ECGD only has a weak set
of "business principles".
A selection of press releases - from NGOs campaigning on the dam and
from Balfour Beatty - and press reports is appended below.
Nick Hildyard The Corner House

Press Release For Immediate Release: 13 November 2001
Balfour Beatty withdraws support for the Ilisu Dam project
Following vehement campaigns from environmentalists and human rights
groups, Balfour Beatty has today announced its withdrawal from the
Ilisu Dam project.
The proposed Dam was set to destroy the town of Hasankeyf in Southeast
Turkey, an area of significant cultural heritage, leaving 78,000 local
residents homeless. Many believed the Dam was part of the Turkish
government's wider plan to ethnically cleanse the area of its Kurdish
population. Those involved in the Ilisu Dam Campaign (KHRP, Cornerhouse,
Friends of the Earth and Mark Thomas), also condemned the Dam for
its disastrous environmental implications.
KHRP hopes the sustained campaign against the Ilisu Dam has sent a
strong message to British companies and the government about the ethics
of export credit guarantee dealings with regimes that have as appalling
a human rights record as Turkey.
Executive Director of the Kurdish Human Rights Project and Chairman
of the Ilisu Dam Campaign, Kerim Yildiz, expressed his delight at
the news;
"There have always been very strong human rights and environmental
grounds why this project should not go ahead. Following Balfour Beatty's
decision we now call on the UK government to confirm that it will
not back the controversial Ilisu Dam."

Labour MP Ann Clwyd who played a leading role in the
campaign against the dam project welcomed news that Balfour Beatty
had pulled out.
She said: ``I hope the British Government will now withdraw from its
consideration of support for the project and that it will make the
announcement this week.
``Up to 70,000 Kurds would be affected by the proposals, local culture
would be lost, hundreds of archaeological sites would be drowned and
the neighbouring countries of Syria and Iraq have not been consulted
about its effect on them.
``The International Development Select Committee, along with three
other select committees of MPs have all recommended the Government
withdraw from the project.
``The Ilisu Dam is bad for human rights, bad for the environment,
bad for regional peace and bad for Britain.
``The Government should make its views clear that there can be no
British backing for such a controversial project.''